Is Tech City beginning to look like a true Silicon Valley rival?

Since I wrote about how difficult it would be for the UK to emulate Silicon Valley last July, time has passed and you’d have hoped that progress has been made towards meeting that goal. The government has continued to push Tech City and with news breaking that Yahoo has acquired London based Nick D’Aloisio’s app, Summly, for around $30 million, many have seen this as a sign that the city can rival Silicon Valley as a centre for tech and innovation. However, this could in fact be a sign that the country has even further to go than we expected, with London right to be excited, but remaining the old-fashioned bicycle to the Valley’s state-of-the-art driverless cars.

The Valley has many reasons for its success, but for the most part this comes down to three factors: finance, the talent network and the culture found in the Valley. When plans for TechCity were first announced, the UK struggled to match even one of these factors.

Access to funding is vital, because without this, the startups will not be able to evolve into fully fledged companies. In California, there is an entire web of funding providers, from venture capitalists to successful entrepreneurs themselves. People might say that banks can do a similar job, but these people are a lot more wiling to take big bets on risky investments, with the investors willing to invest in many companies with the hope that one of them will turn into something as big as Facebook. If Kevin Systrom had gone to a bank to pitch Instagram, they would have laughed him out the door. In fact, it was the funding that sent Zuckerberg to Menlo Park, rather than staying in Boston. It’s an entirely different culture to that found in traditional banks, and in the Valley they’re always available – maybe even in the local coffee shop – willing to listen to any idea, which is a vital piece of the puzzle.

Over the past year, the government has been trying to make progress. The recent budget included various initiatives to help more advanced firms, with the government making it more attractive to investment in AIM traded stocks through the removal of stamp duty and tax breaks. IPOs will also be made easier, echoing moves in the US, to ensure that companies can easily access additional funds at home, rather than having to look abroad. All of these moves should help medium sized companies, but they do little to help the entrepreneur who needs funding to get started. When they first start, no matter how good your idea is, if you don’t have funding you probably won’t get very far, especially when it comes to technology companies. If Systrom hadn’t been able to raise investment to fund servers, he wouldn’t have been able to start Instagram. International investors have started to look towards TechCity, but it won’t be as good as being able to pitch your idea to somebody while you’re drinking your latte.

A talent network is also key, with talented teams needed to turn ideas into reality. It’s not just the valuable engineers that are studying right next door at the Valley’s top universities, but also the key network of experienced entrepreneurs who already know exactly what it takes to succeed. Again, scattered throughout the Valley it’s likely that most people will know or have first hand experience of somebody who has succeed themselves, creating a valuable source of information. Again, without this essential network, succeeding in the Valley would be a lot harder, so it’s another component you can’t do without.

The government has also tried to fix this, with mixed results. It’s widely known that the UK has an engineering skills shortage, but moves to cut down on low skilled immigration will only exaggerate the problem. Highly skilled talent isn’t the target, but without being able to cut down on low skilled EU immigration, it will end up in the crossfire. They’ll be enough workers for TechCity to grow at the moment, but eventually this issue will catch up with it. The Valley’s business experts are also a massive help, as it’s known that tech entrepreneurs aren’t always the best businessmen, so it was a great idea for the government to hire experts to help. Providing legal advice, finance advice or even product advice, being able to talk to successful investors can be invaluable, just as Zuckerberg could speak to Ellison and Jobs. Despite this though, many have complained that they’ve been unable to access the advice. Demand might be strong, but without the supply this is another way that TechCity will miss out.

At the same time, none of the other factors would matter without the culture. In the Valley, everybody’s thinking of the next big idea, with people encouraged right from Day 1. The Valley has been producing tech giants for decades, so you would expect a much more mature culture. Yet even with that in mind, you would be amazed at the high level of ambition and how it’s not just a job, but a way of life. Wherever you go, in coffee shops, restaurants or even for a walk in the park, the talk is all of ideas, fundraising and their work. People live, sleep and breath success. Everybody is supportive of the roadmap to success, with no protestors trying to condemn the innovators before they’ve even made their millions. The culture might seem the most simple ingredient, but it might well just be the most important.

Yet again, this will be the hardest to replicate. London might well be the best City in the world, with hubs for almost any service industry. This might seem good, but it could in fact work against it, with the smaller size of San Francisco meaning that anybody is only an introduction away. Money has been provided to build “community hubs” – where founders can meet and talk – to replicate the intimate feeling of the Valley. Yet again though, culture is something that happens naturally and cannot be forced. Without a doubt, entrepreneurs will live and breath their companies, but in the Valley everyone does, and it’s yet to be seen if this effect is spreading to TechCity. For all the effort you put into this, it’s taken the Valley decades and decades of craft to get to where it is today. Until TechCity’s had its own HP or Facebook we won’t see the same sort of flair and knock-on incubation that the culture needs to flourish.

A few other issues have plagued the trailblazers setting up shop in TechCity and these are a bit more worrying. They might not be as complicated, but since they are fundamental they could cause just as much damage. As with the rest of London, rents are soaring. For most companies, this won’t matter, but for the start-up trying to survive on a shoestring budget, or for an engineering debating whether to go full-time with his idea, it could prove all the difference. The Valley isn’t cheap, yet compared to London it certainly is. This doesn’t just affect offices, it’s also a problem when it comes to housing as well. Connectivity is also an issue, with many of the companies able to access super high speed internet. One of the commentators on my previous post claimed that some of the designers working with him have to go home to upload big projects. For a technology centre, this is one of the first things on the list, and if you can’t get that right, it doesn’t create a lot of confidence. There is yet more bad news, with Rohan Silva, Number 10’s technology advisor, leaving to start his own company. Described as a visionary, this is a big loss, with his drive helping to turn startups into one of the government’s main priorities. There’s still a lot to do and his successor is going to have big shoes to fill. Hopefully this doesn’t mark the start of technology slipping down the government’s list of concerns.

For all of these negatives, many saw the Summly deal as the first signs of light at the beginning of a tunnel. At first glance it seems brilliant. A home-grown idea, developed in the UK, grown into a fully fledged product and sold for a big fee, just as in Valley folklore. Backed by a VC and many celebrities, it also seemed to show that the financing was adequate. Yet, I think it all proves that TechCity still has a long way to go. Just licensing technology from Siri, a Valley company, Summly has no intellectual property of its own and it had no users or revenue. It didn’t even create the Summly app, with that outsourced as well. Yahoo has shut down the service already, so effectively they were just buying Nick D’Aloisio for the $30m – and he won’t even be joining them, instead staying in London to study and will likely leave the company before he finishes.

To me, this just seems like a PR stunt rather than a strategic acquisition. Yahoo with Melissa Meyer at the helm is coming back, but it still has a long way to go, and for $30m it got a lot of press coverage and goodwill that it wouldn’t have got otherwise. At the same time, although Nick had a great idea, you can’t help but think that a lot of it is down to the Hong Kong based investor that backed him. Picked up at an early stage, the investor took his idea and got his company to massively improve it. Then, with his connections his company was able to launch it, market it and sell it to Yahoo. There were complaints from people near the project of bad management, bad practices, amateurish moves (annoying app review websites, such as Gizmodo and Marco Arment) and that the investors were just pushing for a quick profit. It’s likely that although Nick himself has made quite a bit, it’s more of a fee for being a puppet than for developing his creation, with the investors making far more. Until the technology, the investors or the buyer comes from TechCity, it can’t be heralded as a success, more of a signal that the Valley’s is a global powerhouse. Perhaps it’s more of a great story rather than a sign of things to come.

TechCity might just be the fashionable industry in London and could help us end our reliance on financial services, but it’s still far from being a Silicon Valley rival. Some progress has been made, yet in the key areas of talent, finance and culture the country is still far, far behind. There’s signs that even the simple things aren’t quite right meaning that we have even further to go than we expected. The purchase of Summly seemed like it was amazing news, and it was, but just not in terms of TechCity. It’s important to remember that the Valley has had decades of time to grow so it’s still early days, nothing is going to happen overnight. Even so, by now we might have expected to see more signs of development.